Middle Eastern Tycoons Acquiring Chinese Core Assets: Ranking the Top Ten Shareholders of Multiple A-Share Companies

BEIJING, August 5 (CAILIANPRESS) - Introduction Ι Middle Eastern tycoons are significantly ramping up their investments in China's core assets using their substantial financial resources, primarily as a preparation for potential "oil crises" that could emerge in the next 50 years. In accordance with the preliminary information, Middle Eastern funds have secured positions among the leading ten shareholders in numerous A-share companies.

The common perception of the Middle East often revolves around its copious oil reserves, a constant parade of luxury automobiles, and an abundance of local magnates. Leveraging their formidable financial influence, the sovereign wealth funds (SWF) of Middle Eastern countries like Saudi Arabia are progressively increasing their investments in China, thus becoming a driven force within China's financial market that cannot be neglected. Capitalizing on their strategic positioning, resource endowments, and market prospects, these Middle Eastern countries have ushered in fresh prospects for related industries. Chinese enterprises are now keenly drawn to these countries, and invigorating the local economies through diversified transformations. Yet, along this journey, anticipated opportunities and challenges have duly arrived.

Relying on their copious oil resources, several Middle Eastern countries have amassed substantial wealth, leading to the gradual establishment of sizable SWF. Notably, four out of the world's top ten SWF are headquartered in the Middle East: Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Public Investment Fund of Saudi Arabia (PIF), and Investment Corporation of Dubai (ICD). As of 2022, the collective assets managed by Middle Eastern SWF reached an impressive $3.64 trillion, constituting a third of the total global SWF assets. In the same year, investment from these funds surpassed nearly $89 billion, doubling the figures from 2021, with a substantial portion of these funds flowing into Chinese enterprises.

Unit of asset size: billion dollars

Top Ten Global Sovereign Wealth Funds in 2022, Source:  Sovereign Wealth Funds Institute (SWFI)

China, which holds significant complementarity with Middle Eastern countries, undoubtedly become their most crucial partner in the foreseeable future. The historical ties between the two extend back over two millennia. The ancient Silk Road, originating from Chang'an, sowed the seeds of the enduring Sino-Arab friendship. Notably, China and Saudi Arabia have previously inked agreements such as "The Belt and Road Initiative" and a collaborative action plan for "Vision 2030," solidifying their shared objectives. As China's economy continues to expand and remains a pivotal driver of global economic growth, worldwide funds are set to expand their investments in the Chinese market. Meanwhile, SWF from the Middle East are gradually channeling their investments eastward into China.

Experts point out that the total investment capital of Middle Eastern sovereign funds is expected to surge to $10 trillion by 2030, with more than 10% targeted at Chinese assets. Based on the research findings of the Industrial Securities report, the proportion of Chinese mainland assets within the Abu Dhabi Investment Authority soared from 2.7% at the close of 2017 to 22.9% in the initial quarter of this year. This impressive increase propelled the authority's weight ranking from eighth to third.

According to Saudi Arabia's Vision 2030, it aims at improving the proportion of non-oil energy exports to GDP from 16% to 50% by 2030. This ambitious objective entails a six-fold boost in non-oil revenue and aims to escalate the private sector's contribution to the total economic output from 3.8% to 5.7%. Within this framework, new energy vehicles stand as a crucial pillar. The Saudi authority has set a target for electric vehicles to constitute at least 30% of the total vehicles in the capital city of Riyadh by 2030. Another major oil-exporting country, the United Arab Emirates, has unveiled the "Energy Strategy 2050," envisioning a clean energy proportion of 50% by 2050, and eventually culminating in net-zero greenhouse gas emissions. To concretize this vision, the UAE's "Abu Dhabi Industrial Strategy" designates the new energy vehicle sector as a cornerstone of the national energy strategy.

According to the preliminary information from the Chaodian Laboratory, more than five new car manufacturers have entered into cooperation agreements with Middle Eastern countries within the initial months of this year. Prominent brands like NIO, HiPhi, Enovate, and CH-Auto are among them. It is evident that Middle Eastern magnates are increasingly drawn to new energy ventures. Faced with the environmental pressures, several Middle Eastern countries have placed the reduction of carbon emission at the forefront of their priorities. Investing in electric vehicles emerges as one of the most pragmatic strategies for these countries to navigate the energy transition. CYVN Holdings, a significant investor in NIO, operates with substantial backing from the Abu Dhabi Ministry of Finance and operates within the Abu Dhabi Sovereign Investment Fund framework, managing assets over a trillion US dollars. This underscores the strategic nature of Abu Dhabi's investment in NIO within the competitive landscape of smart electric vehicles on a global scale. The new capital resulting from this investment is sure to fortify NIO's financial footing, while its partnership with CYVN will accelerate NIO's global expansion efforts.

China's new energy vehicle industry plays a pivotal role in facilitating the smart development of Middle Eastern countries. Undoubtedly, China has become as the global frontrunner in the new energy vehicle sector. To go with the fast-evolving market dynamics, Middle Eastern countries, spearheaded by Saudi Arabia, have proactively engaged in collaborations with Chinese enterprises, resulting in the widespread establishment of manufacturing facilities. An example of this is the agreement inked in November of last year, wherein Saudi Arabia partnered with Foxconn to create a new electric vehicle brand, Ceer, and construct a local factory covering a million square meters of land. Concurrently, the Saudi Arabian Ministry of Investment is also exploring potential joint ventures, including a partnership with Human Horizons for localized manufacturing.

Middle Eastern funds are seizing "all" prime opportunities and entering a landscape of "Made in China"

Three decades after starting its China journey, Saudi Aramco has successfully cultivated a comprehensive ecosystem including both the upstream and downstream of its industrial chain. This prowess is evident in its recent wave of substantial investments, affirming its confidence in the Chinese market. Beyond the new energy sector, the scope of their asset allocation within China spans across a multitude of domains. Notable sectors such as the Internet, petrochemicals, biopharmaceuticals, and high-end equipment have all witnessed the influence of Middle Eastern magnates.

According to media sources, discussions on investment collaborations between Middle Eastern SWF and Chinese local authorities predominantly are around industries possessing inherent local advantages and companies intricately linked to the industrial chain. This approach is underpinned by a keen focus on the prospective benefits that such investments can benefit domestic industries. When it comes to the requisites for investment in industries and companies, project managers said that their primary focus is on leading entities within locally advantageous sectors—industries characterized by substantial scale, along with target companies with high market share and recognition. However, a precondition for investment entails the transfer of production capabilities to Saudi Arabia, often through the establishment of new factories. This is the result of the sense of urgency within Middle Eastern countries as the trend towards automobile electrification become prominent; consequently, these countries are compelled to establish new energy vehicle industry chains from scratch.

Furthermore, in the field of pharmaceuticals, regional preferences vary significantly due to differences in GDP per capita, industrial composition, and public health policies across various Middle Eastern countries. Taking Saudi Arabia and the United Arab Emirates as exemplars, Saudi citizens heavily rely on the public healthcare system, and are highly dependent on small molecule chemical medicines and imported medical devices. Yet, navigating the approval process for biopharmaceuticals proves complicated, and the entry threshold for the biopharmaceutical sector in the UAE is comparably lower. Many of them need parallel approval of clinical information from the US FDA. Kanghong Pharmaceutical, a prominent domestic ophthalmic biopharmaceutical enterprise representing high-end pharmaceutical cooperation on an international scale, has consistently been steering its course towards market development and collaboration with the Middle East under the "Belt and Road Initiative".

China's collaboration with the Middle East has thrived in many emerging industries such as the Internet and digitalization. For instance, in the previous year, Jitu Express emerged as the 20th officially licensed operating agency in Saudi Arabia, integrating cross-border customs clearance and local delivery. This marked its entry into the Saudi market, effectively enhancing e-commerce delivery efficiency. Sensetime Technology has forged profound partnerships within the local community, spanning domains like smart cities and digital entertainment, collectively propelling Saudi Arabia towards its "Vision 2030" digital development objectives. Notably, the Alibaba Cloud Saudi Arabia Joint Venture has established two digital centers in Riyadh, with plans for additional 16 digital centers across the Middle East. This undertaking aims to accelerate the region's digital infrastructure development.

Investing in China equates to investing in the future

Middle Eastern tycoons are among the top ten shareholders of numerous A-share companies

In recent years, Saudi Arabia has strategically connected itself with several leading entities across various sectors within China's new energy industry chain. Collaborations cover organizations such as State Power Investment Corporation (SPIC), Power Construction Corporation of China (POWERCHINA), China Energy Engineering Group (ENERGY CHINA), China State Construction Engineering Corporation (CSCEC), Shanghai Electric Group, Sungrow Power Supply, Jinko Solar, and Huawei Digital Power through ACWA Power. Reflecting on history, Middle Eastern capital first entered China’s market  in 2006, initially focusing on real estate and banking sectors. During that period, Kuwait Investment Authority (KIA) and Qatar Investment Authority (QIA) participated in the IPOs of Industrial and Commercial Bank of China, with subscription amounts of $720 million and $206 million respectively. Similarly, KIA invested $800 million in Agricultural Bank of China's IPO four years later. QIA demonstrated even more pronounced confidence by investing $2.8 billion as a cornerstone investor.

Over the past couple of years, Middle Eastern sovereign wealth funds, such as Abu Dhabi Investment Authority and Kuwait Investment Authority, have accelerated their engagement with A-share companies. A standout example includes Saudi Aramco's acquisition of a 10% stake in Rongsheng Petrochemical for RMB 24.6 billion. This facilitated collaboration on crude oil procurement, raw material supply, chemical sales, refined chemical product sales, crude oil storage, and technology exchange. In line with this partnership, Saudi Aramco committed to supplying 480,000 barrels per day of crude oil to Rongsheng's petrochemical subsidiary over a 20-year period. According to the preliminary information from Alpha Works Research Institute, Middle East sovereign wealth funds presently occupy positions within the top ten shareholders of at least 40 companies in the A-share market. Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority (KIA) are the primary contributors to this trend. By the close of the first quarter this year, ADIA had invested in 34 A-share companies, with 18 ranking among the top 10 shareholders. KIA has invested in 42 A-share companies, with 29 among the top 10 shareholders.

Specifically, the 18 listed companies in ADIA are Tonghua Dongbao, China Merchants Property Operation & Service, Zhongding Sealing Parts, LBX Pharmacy, Cynda Chemical, XJ Electric, Shanghai Jinqiao Export Processing Zone Development, Shengyi Technology, Beijing New Building Materials, Focus Media, Haid Group, Hengli Hydraulic, Sanhua Intelligent Controls, China Jushi, Tiandi Science & Technology, Yutong Bus, Daqo New Energy, and CICC;

The 29 listed companies in KIA include Jingxin Pharmaceutical, China CYTS Tours Holding, JingPinTeZhuang Science and Technology, Fangsheng Pharmaceutical, Bingchuan Network, Conba Pharmaceutical, R&G PharmaStudies, CHJ Industry, Shanghai Film, Xintian Pharmaceutical, Huajin Chemical Industries, Jinling Hotel, Songyuan Automotive Safety Systems, Angel Yeast, Caiqin Technology, International Medical, SINOTRUK, Foci Pharmaceutical, Faratronic, Satelltte Chemical, Maxwell Technologies, Flyco Electrical Appliance, Guangzhou Restaurant, NHU, Hengli Hydraulic, ITG, Shenzhen Airport, Hotata Technology Group, and Northern Rare Earth (Group).

By the end of the first quarter of this year, Middle East sovereign wealth funds had ranked among the top ten shareholders of A-share companies

Data source: Wind Image source: Alpha Works Research Institute

China's emerging industries, represented by new energy vehicles, new energy sources, biopharmaceuticals, information technology, and the Internet, are witnessing exceptional growth dividends. In recent years, leading enterprises within these high-potential domains have successfully gone public, creating substantial capital gains for investors. However, the profound investment of the Middle Eastern super-rich in Chinese companies goes beyond the financial returns relative to their assets. Analysts point out that this strategy resonates with China's familiar path that has already demonstrated feasibility. As for the upstream, Saudi Arabia accelerates its presence within the photovoltaic domain, and its ambition extends beyond power station applications to encompass a comprehensive industry chain spanning silicon, silicon wafers, cells, and modules. Throughout 2022, the Middle East imported a remarkable 11.4GW of PV modules from China, marking a 78% increase from 2021. In May of this year, the Middle East imported 1,020MW of Chinese photovoltaic modules, with Saudi Arabia's substantial power station project contributing 40%.

Moreover, the Saudi authority has embarked on collaborative endeavors with Chinese enterprises to jointly explore the local photovoltaic market. A good example is TCL Zhonghuan's recent announcement in May of a joint venture with Saudi Vision Industries Company, which aims to invest in constructing a photovoltaic crystal chip factory in Saudi Arabia. Similarly, this April, Chinese photovoltaic bracket manufacturer Arctech has partnered with China Energy International Group to supply a 1.5GW SkyII tracking bracket system for the Saudi Arabia AL Shuaibah project. This is Arctech's first photovoltaic bracket order in Saudi Arabia, but the company has previously participated in the construction of photovoltaic power station projects across Oman, Abu Dhabi, and other Emirates regions. Moreover, Arctech has established branches in Saudi Arabia and the United Arab Emirates. In addition to TCL Zhonghuan, China Energy and Arctech, there are many Chinese companies that have engaged in new energy collaborations with Saudi Arabia, too.

LONGi, for instance, has previously participated in the 406MW PV project of the Red Sea New City and is set to provide PV modules for the Sudair 1,800MW project in 2023. In January this year, Jinko Solar has announced plans to develop the 300 MW Thaad PV independent power generator project in the third phase of the Saudi National Renewable Energy Program (NREP). Additionally, Solar Power is slated to supply 536 MW/600 MWh of energy storage for ACWA Power's Saudi Red Sea New City project. Jinko Solar will also supply ACWA Power with 4 GW of Tiger Neo components for project development and construction.

Insiders suggest that the broad investments of Middle Eastern tycoons in China's high-quality assets, although appear aimless, have a strategic foresight behind them. While harvesting the growth benefits of China's core advantageous sectors, this move helps introduce China's technology and production capacity into the region. Such collaborations catalyze the transformation and advancement of the economic development mode and industrial structure, and mark exactly the similar approach China’s has taken before.

Source:  CAILIANPRESS (CLS)

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